Friday, June 15, 2012

China: Bubbles on Top of Bubbles

...even though the Chinese government has been, for years, telling everyone that they are serious in trying to curb home prices, it is now becoming clear that because rising home prices and inflation are what make Chinese ruling class gain personal profit, they are now giving up on real estate market curbs already. In fact, not only have they been fine-tuning real estate policies mainly at the local governments level, they have started cutting lending rates, as we have all known. Between attempting to maintain high growth and letting the economy to adjust, the government speaks the latter and does the former.

As a result of all these subtle changes in languages and actual policies, it seems that the real estate market is heating up again in various cities. Now we are seeing queues in property sales office again in Beijing, Shenzhen and other places as people seem to believe that as the tightening is over, real estate prices will rise again according to Sina. As we said yesterday, that this is rather pathetic as the government seems to be hoping that speculators will come in again to save the economy. _Also Sprach Analyst

What these bubbles on bubbles are covering up is the fact that the Chinese government has no idea what it is doing, as far as China's economy is concerned.

Even worse, the Chinese CCP government may not want to know what is truly going on under all the layers of bubbles they have helped generate through their multiple levels of essentially unworkable and incompatible economic policies.

Chinese state owned enterprises (SOEs) -- including large banks -- are turning out to be the Chinese equivalent of Enron, Bernie Madoff, and Jon Corzine combined. This does not bode well for the time when bills must finally be paid.
[Chinese] Money supply rose markedly in May and recent years' credit growth has surpassed even that of the U.S. in the period leading to the Lehman collapse. Unfortunately, instead of being put to good use, much of that money has ended up in the hands of wasteful state-owned enterprises, or SOEs...

...The SOEs are like the profligate Real Housewives of Beijing. They get tons of money to splurge on fancy, wasteful items, get wined and dined by the country's most powerful figures, yet contribute relatively little to the economy. In many cases, they're profitable solely because they're the only players allowed in strategically important industries...

...Of course, the nation's four largest banks -- themselves majority state-owned -- have a tremendous bias in lending to SOEs. And the government's vested interest in protecting the status quo has led to major restrictions on multinational banks looking to expand within China. ...

...As a result of their intimate connections with China's authorities, SOEs enjoy a number of remarkable advantages that private firms would kill for. They get huge government subsidies in the form of significantly lower tax rates, have access to much cheaper basic inputs like water, land, and energy, and enjoy barriers to entry in key industries.

But despite their edge, SOEs are much less efficient than their private counterparts, and have become increasingly inefficient over the past decade. In fact, many are loss-makers and there's mounting evidence they've misallocated capital on a tremendous scale. But thanks to the "wonders" of state capitalism, they keep getting funded -- accounting for more than 75% of all bank loans -- and continue to expand. _Daily Finance

Those who are interested in the ultimate future of modern China should read the full piece in Daily Finance.

This type of corruption in high places is not likely to turn out well. And yet, an international poll by Pew Research reveals that most westerners see China as the world's dominant economic player.

Welcome to the global Idiocracy.

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